First 100: The Small Business Relief Snarl

There’s $120 billion left in PPP forgivable loans, with only three weeks left to apply. Small businesses are struggling to get traditional loans, too.

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It’s March 10, 2021 and welcome to First 100. You can sign up to have First 100 delivered to your email by clicking here.

The Chief

One of the areas where the American Rescue Plan actually pulls back from previous coronavirus relief bills is on small business grants. There’s a roughly $25 billion fund for independent restaurants in there, and $15 billion in grants for businesses in low-income areas. And it funds a Community Navigator program to help smaller businesses access relief. But there’s nothing like the hundreds of billions of dollars that has funneled through the Paycheck Protection Program so far. That means the Biden team can turn its attention to implementation, which could be better at this stage.

The current round of forgivable loans ends March 31—again, I still do not understand why there’s an end date on these programs—and to date, PPP has furnished $687 billion in loans to 7.5 million recipients. Another 250,000 applications are under review.

Most of the loans in this round have been “second draws,” from businesses that previously got a loan and seen serious drops in income. About $164 billion has gone out since the reauthorization in the December relief bill. That’s out of $284 billion available. So a little more than two months after reauthorization, about 56 percent of the available funds have been used. That takeup seems kind of low, especially considering that there are only three weeks left to apply. For context, in the previous three-week stretch, only $40 billion was approved, one-third of what’s available.

There are a few hurdles on small business relief right now. First, there’s the expectation of a late rush to the loan windows in this final stretch. That’s a problem, because as I’ve written, new anti-fraud measures in the last round of relief have led to a large number of applications being flagged with “error codes.” Initially about half the applications were getting hit with this, and while that’s improved, there are still a significant number under review, and more applications that haven’t been able to be submitted. Banks have already expressed concern about a backlog, and a freeze-out for some unlucky applications.

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Second, the Small Business Administration is already overburdened with forgiving the loans from the previous two rounds. Longtime readers will know that the Prospect received a PPP loan last April; we just got our forgiveness order this week. We’re one of the lucky ones. The majority of borrowers have not had their loans converted. Banks have to get involved with forgiveness and there’s no real incentive for them to do so. Plus, the SBA has the limited bandwidth we already know it has. (The American Rescue Plan diverts a whopping $840,000 in new funding to SBA, which will do approximately nothing. UPDATE: the White House indicates that overall, there's been an additional $1.3 billion in funding for administrative costs at SBA.)

In addition, a separate SBA grant program for independent cultural venues known as “Save Our Stages,” part of the December bill, STILL hasn’t gotten off the ground. The new American Rescue Plan clarifies that venues can take a PPP loan and a Shuttered Venues Operating Grant (which Save Our Stages grants have become named), with PPP deducted from the total funds eligible under SVOG. But the American Rescue Plan is only passing Congress today, giving venues just a few weeks to apply for PPP. Venue operators have been waiting around for this rule change.

This comes as some banks close their application process early. Others have asked the Biden administration to extend the deadline for applications. But the White House has mostly touted its previous fixes to improve the program. In a press briefing yesterday, National Economic Council deputy director Bharat Ramamurti highlighted a recent 14-day window for only the smallest businesses (under 20 employees) to apply, and increases in those smaller business applications (including a 20 percent spike in applications from minority-owned businesses).

But while equity is nice, $120 billion is still on the table with three weeks to go and a ton of bureaucratic challenges. Ramamurti also mentioned a series of changes to PPP to prevent flags to applications and to increase relief to sole proprietors, but banks are saying they haven’t had enough time to incorporate those changes into their systems, and that error code issues continue to crop up.

There’s a House Small Business Committee hearing today where a lot of this should come up. These PPP loans don’t work for every business, and for a subset of businesses that want them, they’re still not working. Implementation matters, and sunshine talk needs to be backed up with action for the next few weeks.

The Capital Step

Now you might say that PPP is a moot point, in an economy that is on the verge of an economic boom. The main commercial street next to my house has half the storefronts empty, and a few blocks down, my favorite sneaker store just closed up, so I don’t know how you can say that. Maybe some of the businesses hanging on now wash away, you counter, but with pent-up demand about to burst, others will take their place.

Well, maybe. It’s true that stronger safety nets, like what the ARP sets up, spurs entrepreneurship. But startup business owners also need capital, to fund office space or near-term manufacturing or publicity. And small business lending just has not been great. Loan approvals for small business are at 13 percent, down from 28 percent a year ago according to one survey.

You would think a hot economy would make bankers more secure in granting small business loans. But 28 percent during a near-full-employment period last year isn’t great either. And it’s been a year of changing work and consumption patterns that could make certain types of small businesses be perceived as risky. There’s a correction in the markets right now, as small-cap stocks boost and tech stocks recede, with normalcy in sight. But “small-cap stocks” have little to do with truly small businesses, who have seen market share eaten up by the giants over the last year.

The ARP includes $10 billion for the State Small Business Credit Initiative to get capital to small businesses. That seems meager (the idea is to leverage private money and what if private money has other ideas?). We can have a hot economy and a bunch of empty storefronts; we kind of have it right now. This is a key to ending the rich-get-richer economic dynamic. It’d be good to see more focus.

What Day of Biden’s Presidency Is It?

Day 50. The midway point of First 100!

Today I Learned

  • The American Rescue Plan should get final passage today. (Wall Street Journal)
  • The Senate is now a nomination train until further notice. (Politico)
  • The go-it-alone strategy on COVID relief may have “crippled [Biden’s] ability to do grand bargains.” Oh noes! (National Journal)
  • COVID vaccines now available to anyone in Alaska. (Axios)
  • Biden will purchase another 100 million Johnson & Johnson vaccines. (Talking Points Memo)
  • Arkansas bans nearly all abortions, setting up a Supreme Court fight. Biden needs to figure out his game plan when choice is inevitably abridged. (KAIT8)
  • The Justice Department stops defending the Trump-era “public charge” rule to block immigrants from entry. (CNBC)
  • Closing the tax gap would be a $7.5 trillion boost to fight inequality. (New York Times)

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